The highway was originally designated by 1933 from Hondo southeast to Jourdanton. By 1939, the designated route was extended south from Jourdanton through Freer, absorbing State Highway 241, with an expected terminus at Hebbronville. By 1942, the section from Freer to Hebbronville had been cancelled. In 1965, the section south of Jourdanton was transferred to SH 16. In 1990, the route was extended northward to Kerrville, replacing RM 689.
SH 173 begins at SH 16 just north of Jourdanton. SH 173 runs northwest toward Devine where it intersects I-35 in the south part of town. Leaving Devine, 173 turns running in a sharper northwest direction. Just east of Hondo, the highway interchanges with US 90. The highway turns to run in a more north-south direction, twisting and turning many times through canyons. SH 173 enters Bandera and intersects SH 16 for a second time. The two highways share a short overlap before splitting. Here, signs are posted advising trucks and through traffic to use SH 173 as a route to Kerrville instead of SH 16, as SH 173 is a shorter and faster route, while SH 16 traverses a hill with many sharp curves. SH 173 intersects SH 16 for a third time in Kerrville, where the highway ends.